Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro

European Semester 2014

Press Conference on European Semester, Brussels

13 November, 2013

Good afternoon. Our Autumn Forecast last week confirmed that Europe is seeing an economic turnaround. Confidence is increasing and a recovery is getting underway. Our economic strategy has helped to overcome the worst turbulence and stabilised the situation. Now we need to strengthen the recovery. This requires us to stay the course of economic reform for sustainable growth – which means also green growth and greater resource efficiency – and job creation.

In two days, on Friday, we will publish our first opinions on draft budgetary plans submitted by euro area member States. These opinions will assess how the Member States are reflecting the Council's recommendations for 2014 in their own budget planning. In so doing we will be implementing the recent major reform of our reinforced economic governance. I will come back to this on Friday.

The President has taken you through the key elements of the Annual Growth Survey 2014. Today's package is in fact all about growth, about building a strong and sustainable recovery, especially in terms of employment. In this context, the Alert Mechanism Report is a very important tool for advancing the necessary reforms. Through it, we identify those Member States that merit a closer analysis to find out whether they are experiencing macroeconomic imbalances which could hinder growth both within and beyond their borders.

I know well that there has been a rather heated public discussion about this report well before it was adopted. Although there is plenty of excessive politicisation around the issue, I take it also as a welcome sign of its growing resonance in the media, among the general public and in national capitals.

In essence, the Alert Mechanism Report is a screening device that looks at macroeconomic developments with the help of a scoreboard of agreed indicators. Based on an overall appreciation of the situation, some countries are selected for a more in-depth review.

Only when these in-depth reviews are published next spring will we conclude whether imbalances exist at all, and if so, how serious they are. In the meantime, our recommendations, which are in fact Council recommendation from last July, are for sure still valid for all Member States of the EU.

We have decided today to carry out another round of in-depth reviews for the thirteen Member States examined in the previous round, which was concluded in April.

For Spain and Slovenia, which we found in April to be experiencing excessive imbalances, we will assess whether these excessive imbalances persist or are unwinding. We will also assess the contribution of the reforms implemented by these two countries to overcome these imbalances.

We will also assess the persistence of imbalance in the three countries for which we called for decisive policy actions: France, Italy and Hungary.

For the other Member States identified in spring as experiencing imbalances – Belgium, Bulgaria, Denmark, Malta, the Netherlands, Finland, Sweden and the United Kingdom – we will assess whether these imbalances persist or whether they have been overcome.

This could potentially lead to the closure of the Macroeconomic Imbalances Procedure for some Member States, but we will only know this in the coming spring.

We have also decided today to carry out in-depth reviews on Germany and Luxembourg, in order to better understand their internal economic developments and assess whether either country is experiencing imbalances.

We will also carry out an in-depth review for Croatia, to understand the nature and potential risks related to its external position, trade performance and economic competitiveness, as well as internal developments, including of course the high level of employment.

As I said before there is already a lively and sometimes simplistic and not very constructive debate underway about the nature, reasons and impact of a large current account surplus, in particular in Germany.

The in-depth review will be done with an open mind and there will be no pre-cooked conclusion, but I am sure that this in-depth review will provide a valuable contribution to the policy debate on economic policy and economic reforms in Germany.

Germany is the growth engine of Europe, not least thanks to its excellent external economic performance and broad trade links to global markets including the fastest growing emerging economies. Let's be clear on this, we are not criticising Germany's external economic competitiveness or its success in global markets, in fact that is what we want from all EU Member States. But a persistent high surplus also means that Germans are persistently investing a large part of their savings abroad. The question is thus whether this is efficient even from the German perspective. In fact we had discussed some of the reasons for these capital flaws in the surplus study of last December already, which I have found has received surprisingly little media interest even though it deserves interest because it is a very well done analytical study.

Germans themselves debate whether they invest enough in their own country. Moreover, we already pointed out in May some areas where Germany should take a look at some structural impediments to domestic demand – as President Barroso said, reforms in the service sector being one of these areas.

More demand in Germany can also spill over to the vulnerable countries to varying degrees, but the precondition for this is that their products and services have to be competitive and that they work further on their economic reform agenda. Otherwise more demand in Germany would simply go to the neighbouring countries and to China and to other emerging economies. So this is a further reason to stay the reform course in Europe.